A credit card can be a valuable tool for making reservations, online shopping, and those emergencies we never plan for. The key is to use them responsibly, paying the balance in full each month whenever possible. In today’s society, the average household has seven credit cards, and are carrying an average balance of $10,000 or more.
The large balance is due in part to the buy now pay later concept of our culture. We don’t really ever stop and think about how much that purchase is going to cost us in the long run. Rather than save for large purchases, we are apt to have the I want it now attitude and pull out the plastic.
While credit cards can be convenient and helpful during emergencies, many households have found themselves drowning in credit card debt. Their spending habits have gotten completely out of control. They have gone from using their credit card occasionally for items to using it for everything; often new charges greatly exceed the amount they are paying on the card. As a result, the balance due continues to increase and increase until they find themselves maxed out. Some households are known to take cash advances from one credit card to use the cash to pay another credit card. All of these are signs that your credit card spending is out of control.
If you find yourself in that situation, you might wonder how you got there. You will also be concerned about what you are going to do now. The first step is to write a budget plan for the family. It is important to involve everyone in the family, even small children. This way everyone knows what the plan of action is going to be. Decipher between your needs and wants. Then work hard to eliminate the wants. A great activity is to have each family member keep a detailed log for one week of all expenses, no matter how small. Then meet to go over everyone’s log. You will be amazed at all the little things that are zapping your disposable income.
As hard as it sounds, you are going to have to cut up all of your credit cards except one. Give it to a trusted friend or family member with strict instructions that it can only be accessed in an emergency situation. No exceptions! Make a list of all your credit card debt and the interest rates. If possible, transfer balances to lower interest cards. Make sure your monthly budget plan allocates funds to meet the minimum balance on each card.
As you and your family work hard to cut back on unnecessary expenses, take that extra money and apply it to the credit card balance with the highest interest rate. Once it is paid off, apply the money you were using on that card and the continued savings to the next card. Continue doing this until all the credit cards are paid in full. Think of fun things you and your family can do together that doesn’t cost money such as spend the day at the park or play a board game at home. Rent a movie to watch rather than going to the theater. Having a budget doesn’t mean your family can’t enjoy some fun.
If you are not able to meet the minimum payments on your credit cards, consider consolidating them into one lower monthly payment. You might also consider a credit counseling service for assistance. Some people choose to take out a home equity loan to pay off their credit cards. While this is a viable solution, be careful. If you don’t change you’re spending habits you will find yourself charging up the balances again. In addition, you will have a higher mortgage payment to make each month.
Credit cards are a great resource if used properly. They can help us reserve vehicles, vacations, purchase items online, and offer us security that if an emergency arises we have the funds available to cover it on your credit card. However, if you don’t keep a tight rein on your credit card use, it can spin out of control like a tornado headed straight your way, leaving a path of destruction behind for you to sift through.